Fannie Mae modifies loan purchase rules

CBS.MarketWatch.com

WASHINGTON (CBS.MW) -- Fannie Mae, the nation's largest home mortgage banker, said on Tuesday that it has established new anti-predatory guidelines for the loans it purchases from lenders in an effort to curb abusive lending practices. It said it will notify lenders today of the new policy.

"We have an obligation to define the loans we will not buy, and practices we will not support -- practices that can have the effect of encouraging predatory lending," Franklin Raines, Fannie Mae's chairman and chief executive officer, said in a statement.

At a meeting of Fannie Mae?s Housing Impact Advisory Council on Monday, Raines summarized the new restrictions.

The new rules prohibit lenders who sell loans to Fannie Mae
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from steering qualified borrowers to higher-cost mortgages, charging excessive fees to borrowers with poorer credit records, requiring borrowers to pay up front for a credit life insurance, and other abusive practices. Fannie Mae buys mortgages from lenders and packages them into securities.

Raines told the Advisory Council, that "in light of recent indisputable evidence that some predators are taking unfair advantage of consumers and stripping them of wealth and equity, we feel an obligation to clearly state our expectations and standards."

Regulators and lawmakers have focused recently on so called subprime lenders, those who target borrowers with less than perfect credit histories. Fannie Mae and Freddie Mac
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have also been criticized for their policies in the subprime market.

The Clinton administration said Sunday it wants to prohibit Fannie Mae and Freddie Mac from buying predatory loans.

Housing and Urban Development Secretary Andrew Cuomo said in a statement that the administration wants to offer legislation to ban the agencies from purchasing loans where the points and fees charged the borrower exceed 5% of the mortgage amount.Cuomo will outline his proposal in more detail on Wednesday at the first meeting of HUD's task force on Predatory Lending.

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